Thursday, January 10, 2013
A funny thing about politicians. Since so many lack any real world experience, they believe that those of us in the real world do not react and respond to their policies, laws, and regulations. Specifically, changes in the tax code tend to prompt swift and decisive action by those affected. Perhaps one of the most notable recent events was French actor Gerard Depardieu renouncing his citizenship and becoming a Russian citizen. His actions are in response to President Francois Hollande's attempts to push through a 75% income tax on all incomes exceeding $1 million as well as a "wealth tax" on top of the income tax. Depardieu did, predictably, what most of us would have done if we had been in that situation- rather than have his income confiscated, he relocated to a country that has a flat tax. A much lower flat tax. His actions have been called "unpatriotic" and "pathetic" by French officials. I say not so. Instead, this is the normal response to protect income and assets from an overreaching and rapacious government. Granted, most of us do not find ourselves in the economic circumstances of Depardieu nor with the ability to move our citizenship. That still doesn't mean there are not effective ways to lower the tax bite of our government. And this is what all politicians fail to grasp. Those that work for their income and are attempting to build wealth will respond to the laws and the environment and do what they can to preserve their assets. This is exactly why, in the history of our country, that tax collections have averaged 18% of GDP regardless of the tax rate. So if we are going to begin to move toward fiscal sanity in this country, raising taxes, as this example shows, does not have a lasting long term impact toward bringing in more revenue.
Well, if the Mayans have taught us anything, it is that if you don't finish something, it's not the end of the world.
Get ready to pay more for a new car. This past fall, the Department of Transportation in conjunction with the EPA released the finalized new car and light truck fuel efficiency standards. These standards mandate that by the 2025 model year, the corporate average fuel economy per vehicle must be 54.5 miles per gallon. What this means is that consumers will bear the costs for the research necessary to try to get to this mileage standard. By the way, the standard for this year's vehicles is 29 mpg, so you can see that the new standards are asking for the auto industry to nearly double fuel economy over the next 12 years. This also means that consumer choice will be limited as certain types of vehicles are no longer profitable to produce because they will harm the average fuel economy. All of us want a clean environment, and we certainly want good gas mileage out of the vehicle we are driving. This, however, is significant government intervention into the market that will cost all of us unnecessarily.
They say you should test your fire alarm once a month, but it is costing me a fortune in houses.
Something that we all should watch is the financial health of many of our states. Many states have well managed finance departments that have soundly managed budgets and expenditures. More importantly, these states have elected leaders that have not given away the state coffers in to unions in unachievable pension and benefit promises. However, there are a number of states that are significantly underwater from a financial standpoint. Bloomberg news estimates that state budget shortfalls have accumulated over the past 4 years to nearly $500 billion dollars. When a state gets into financial trouble, the options are limited. They can raise taxes on property owners and businesses. California has done just that and the exodus of productive businesses and individuals with the financial means to do so has been extraordinary. The state also has the option to go back and modify benefits and ask current employees to contribute more toward their benefits. This was what the fight in Wisconsin was about last year. They can do nothing and just let the train wreck happen. Or they can petition Washington for help and ask for the federal government to bail them out. None of the options are easy, but some are more politically expedient. With rare exception (Wisconsin's Scott Walker), most politicians opt for expedient. While California is the poster child for financial mismanagement, look for other states to begin to wilt under the untenable load of pension and public union benefit packages.
I tell my daughter that if she quits school to remember two things: 1) you tried your best and 2) I don't like pickles on my Big Mac.
And that, my friends, is my view.